Justice Dipankar Datta, Justice Sheel Nagu, Supreme Court
Entrusting AI With Pilot’s Seat Is Dangerous: Supreme Court Sets Aside Customs Penalty Order Based On Fake Citations
|The Supreme Court was considering an appeal against an order dismissing a challenge raised against the imposition of penalty by the Customs Authority.
The Supreme Court has set aside an order of the Additional Commissioner of Customs, Surat, imposing a penalty of Rs 425 crore by relying on fake AI-generated case laws and citations. The Apex Court also put up a word of caution by stating that AI may serve as training wheels but entrusting it with the pilot’s seat would be both imprudent and dangerous.
The appellant approached the Apex Court by filing an appeal against an order dismissing his challenge made against the penalty imposed by the Additional Commissioner of Customs, Surat.
The Division Bench of Justice Dipankar Datta and Justice Sheel Nagu stated, "A further investigation has also revealed that some of the case laws relied upon by the second respondent, which do exist, do not lay down the ratio deduced therefrom and it appears to be a hallucination of AI."
“While this issue incidentally falls upon us to be considered, use of AI in the process of adjudication is not foreign. Quite the contrary, this Court has recently released draft Regulations for Use of Artificial Intelligence in Courts, 2026, calling for comments and suggestions. Notwithstanding that the regulations are yet to be finalised, use of AI as an assistive tool to speed up the decision-making process cannot be denied. However, a note of caution must be sounded: assistance can never be substituted for adjudication. AI may well serve as training wheels but entrusting it with the pilot’s seat would be both imprudent and dangerous", it held.
AOR Shamik Shirishbhai Sanjanwala represented the Appellant while Gurmeet Singh Makker represented the Respondent.
Factual Background
The Additional Commissioner of Customs, Surat, passed an Order-in-Original imposing a penalty of Rs 425,27,99,100 on the appellant under Section 114 of the Customs Act, 1962, for mis-declaring a consignment of natural diamonds as lab-grown diamonds to pay a lower tariff. The appellant's challenge to the penalty before the Gujarat High Court failed, as his appeal was dismissed. Aggrieved thereby, the appellant approached the High Court.
Arguments
The appellant argued that several judgments and articles cited by the Additional Commissioner of Customs, Surat (second respondent), in the Order-in-Original were generated using Artificial Intelligence.
Reasoning
On a verification of the judgments and articles, the Bench found that the Additional Commissioner had relied upon case laws that were either non-existent or had fake citations.
The Bench was of the view that the use of AI in the case resulted in reliance placed by the Additional Commissioner of Customs on material which was dubious and proved fatal to the sustainability of the order imposing penalty on the appellant. “Such circumstances compel us to interfere and remand the case”, it held.
Allowing the appeal, the Bench set aside the impugned order of the High Court confirming the penalty.
The Bench thus revived the proceedings against the appellant before the second respondent for being decided afresh by an officer of the same rank other than the one who passed the order in question.
“We leave it to the wisdom of the appointing authority to initiate such action against the author of the order dated 8th October, 2025, as may be warranted in the circumstances, in accordance with law”, it stated.
Cause Title: Vijay Ghanshyam Gadiya v. Union of India & Anr. (Neutral Citation: 2026 INSC 947)
Appearance
Appellant: AOR Shamik Shirishbhai Sanjanwala, Advocates Paresh M. Dave, Aditya Tripathai, Shubhangi Agarwala
Respondent: AOR Gurmeet Singh Makker